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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term Ultimate Products Plc (LON:ULTP) shareholders, since the share price is down 52% in the last three years, falling well short of the market return of around 19%. And the ride hasn't got any smoother in recent times over the last year, with the price 41% lower in that time. Shareholders have had an even rougher run lately, with the share price down 29% in the last 90 days.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
View our latest analysis for Ultimate Products
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the unfortunate three years of share price decline, Ultimate Products actually saw its earnings per share (EPS) improve by 9.9% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
Given the healthiness of the dividend payments, we doubt that they've concerned the market. We like that Ultimate Products has actually grown its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Ultimate Products in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Ultimate Products' TSR for the last 3 years was -43%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.